The United Arab Emirates has historically attracted top talent and investors due to its tax-free status. While there is no income tax on personal income, salaries, capital gains and inheritance, a Value Added Tax (VAT) was introduced in 2018 after the drop in oil prices put a strain on government coffers. A standard 5% VAT is applicable to most products, goods and services in the country, resulting in a slight increase in cost of living.

The VAT component is typically included in the asking price for products and services – so the price that appears on the label is the price that must be paid.

Apart from VAT, the governments of the individual emirates have historically charged fees for various services, such as a housing fees, property transfer fees, registration fees, and knowledge and innovation fees.

At the national level, the UAE also charges an excise duty on ‘sinful’ products such as alcohol, tobacco, carbonated drinks and energy drinks.

Keep on reading for more details about fees and taxes for expats.

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No Income Tax in the UAE

Salaried individuals can expect to receive their entire monthly due at the end of the mouth – a well rounded off figure with no deductions of taxes. This applies to expats and locals alike.

To dispel any rumours otherwise, the ruler of Dubai has specifically clarified that the government is not considering any taxes on personal income.

‘Expat Tax’ for some Nationalities

The UAE currently has 115 Double Taxation Agreements (DTA) with trade partners to ensure the same tax payer must not pay similar taxes in multiple countries. As a result, most expats who qualify as non-residents in their home countries can enjoy 0% tax on their income within the UAE and reduced tax on dividends (where applicable).

The criteria to qualify as non-residents varies by country, and is usually dependent on the number of days spent outside the home country in a year, the number of consecutive years spent abroad or the ownership of property in the home country. Most countries require that expats pay taxes on income generated in their home country. Expats may also be eligible to pay further taxes should they repatriate to their home country.

On the other hand, expats from countries such as South Africa and the United States may be taxed on their UAE income. For example, from March 2020 onwards, South African expats in the UAE will have to pay up to 45% tax on income exceeding AED 260,000 a year. Similarly, US citizens and green card holders may be eligible for taxes should their income exceed a certain threshold - this is strictly enforced by the US government which has access to taxpayer details in the UAE.

Tax laws are frequently updated around the world, and it is important to seek the latest information related to expat taxes in the relevant home country.

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Value Added Tax (VAT) in the UAE

Value Added Tax came in to force in the UAE and neighbouring Saudi Arabia in 2018, with other GCC countries expected to follow suit. The tax is intended to diversify the government’s income streams and limit the reliance on income from oil and other hydrocarbons.

VAT has been in effect since January 1, 2018 at a flat rate of 5%. Most goods and services in the country are taxable at 5%, while some are taxed at 0% or exempt from VAT altogether. The Federal Tax Authority is the national government body that oversees all matters pertaining to VAT.

The below categories are exempt from VAT. They do not have to be registered for VAT and cannot reclaim VAT incurred on related goods or services:

• Some financial services, such as life insurance
• Residential properties
• Bare land
• Local Passenger transport

The below categories will be charged 0% VAT. They can reclaim VAT they have paid to suppliers:

• Exports of goods and services outside the GCC
• International transportation and related supplies
• Supplies of certain sea, air and land means of transportation (e.g. aircrafts and ships)
• Certain Investment grade previous metals
• Newly constructed residential properties that are supplied for the first time (for rent/sale) within 3 years of construction
• Supply of certain education services and associated goods and services
• Supply of certain healthcare services and associated goods and services

Goods that are stored in warehouses in designated areas are considered outside the UAE for VAT purposes. Once they enter into free circulation in the UAE, they are considered imports and applicable for VAT.

One exception to above is that UAE Citizens can reclaim VAT incurred during the construction of their personal residences. This must be claimed within 6 months of moving in to the residence, or receiving the completion certificate, whichever is earlier.

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'Pay as you go' Fees

Apart from VAT, and indeed before the introduction of VAT, locals and expats must pay fees for specific services that they utilise.

• Housing Rent Fee of 5% in Dubai (Expats only) – the fee is 5% of the annual rent value for tenants, it is divided into 12 months and applied to the monthly DEWA bill. No additional VAT is applied on the housing fee.

Emiratis receive electricity at subsidised rates and water for free.

• 10% Dubai Municipality fee on Hotels – this fee also applies to restaurants that are situated within hotels. Since most restaurants that are licensed to serve alcohol are located within hotels, this fee is commonly incurred by expats.

• Excise duty on tobacco (100%), energy drinks (100%) and carbonated beverages (50%). Dubai Municipality also imposes a 30% fee on alcohol sold in stores in the emirate – a license is required to purchase alcohol legally, which costs AED 270 per year.

• AED 10 Knowledge Fee + AED 10 Innovation Fee for using government services – This fee is commonly incurred when applying for paperwork such as driver’s licenses, visas, businesses licenses and so on.

• AED 35 departure fee when flying out of Dubai airports. This fee applies to all travellers, including transit passengers. Children under two, cabin crew and pilots are exempt from this fee.

Other expenses commonly incurred by expats include annual car registration fees, relatively high home internet plans, relatively high mobile plans, and monthly air conditioning or ‘chiller’ fees (which can range from a few hundred per month in winter to upwards of AED 1,000 in summer – for a 1-2 bedroom apartment).

Emiratis are eligible for special rates for home internet, telephone and TV connections, and also for mobile plans.

Other Financial Matters to Consider

The list above highlights the fees and expenses that will typically be incurred by expats in Dubai. Two other expenses may be applicable.

The cost of a local will. In the absence of a will, local Sharia laws will apply which stipulate that a person’s assets be distributed amongst their parents, spouse and children at specific amounts. Should there be a dispute, assets will be frozen until a resolution is reached. In case the deceased is a man with children, custody of the children will automatically go the paternal grandfather. Expats with families will tend to invest in creating a local will to ensure their assets are split as per their choice and to grant custody of children to the mother in the event of an untimely death.

The cost of a freelancer / influencer license. Expats who wish to freelance as their primary source of income or on the side will require a freelancer license. This license allows them to operate freely, advertise their services, avoid penalties, open business bank accounts, withdraw money from PayPal accounts and offers them legal protection in case of disputes with clients. The cost of the license depends on the type of service rendered. Social media influencers who receive payments for their content also require a license to operate legally.

While expats in Dubai are becoming increasingly conscious about the cost of living in the emirate, most are now accustomed to the various fees charged and 5% VAT. The absence of income tax is still a strong draw for many expats and investors, as are the high salaries that Dubai has to offer.